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Wednesday 8 July 2020

Australia makes it difficult for foreigners to own companies — to China’s chagrin

The souring of Australia-China relations over COVID inquiry and barley import tariffs coincide with the Modi-Morrison bonding this week

Australia is completely overhauling foreign investment laws to protect the country’s national security. The Foreign Investment Review Board under the country’s government will hereafter vet foreign bids for a “sensitive national security business”. Earlier, the board vetted bids from private investors only if the asset was worth more than $ 275 million. That cut-off mark was as high as $ 1.2 billion if the bid was from a country with which Australia has a free trade agreement, including China.

Treasurer Josh Frydenberg said industries deemed ‘sensitive’ would include energy, telecommunications, utilities, defence and security and any other he decides. “These are the most significant reforms in nearly 50 years and we hope of getting bipartisan support for them,” Frydenberg said. 

Under the new system, the thresholds will remain the same for foreign bids for non-sensitive businesses. The treasurer will gain powers additionally to force a foreign owner to sell, should national security concerns arise.

However, the government wants to also make it easier for foreign companies to invest in non-strategic assets to boost Australia’s economy. 

The government of Australia will place the new rules before its parliament in July. If passed, the code will come into force on 1 January. Until then, any foreign bid for an Australian company will be subjected to reviews under temporary rules to protect ailing companies during the coronavirus crisis.

The largest foreign investors in Australia are the US, the UK, Japan and China — in that order — but observers believe this is a measure aimed at China, given the souring Sino-Australian relations following the Scott Morrison government blaming the communist state for unleashing the deadly virus on the world and Beijing retaliating by trying to cripple the economy Down Under.

The government has allowed its trading partners to learn the proposed rules through diplomatic channels. Morrison said there was “no reason” why China should be angered by the change.

A series of recent controversial takeovers by Chinese-owned companies, including the lease of the Port of Darwin to Chinese Communist Party-linked Landbridge Group in November 2015, prompted the government of Australia to formulate these new rules, industry watchers believe.

Then-US President Barack Obama had questioned the deal, leading former deputy secretary of state Richard Armitage to say Australia had “blindsided” its ally.

Government sources said the agreement with the group’s subsidiary Landbridge Australia would not have been approved had the FIRB’s rules been in place, The Australian reported. “Through the introduction of a new national security test, stronger enforcement powers and enhanced compliance obligations, we will ensure that Australia can continue to benefit from the foreign investment while safeguarding our national interest,” Frydenberg said.

In 2016, as the then-treasurer, Scott Morrison had overturned a bid of China for energy company Ausgrid over national security concerns. The intervention just 10 days before the deal’s deadline had turned the Chinese government livid. Beijing had then accused Canberra of “discrimination” and “protectionism”.

Buyers from China invested $ 24 billion on Australian real estate in 2019, thus turning the largest group of foreign purchasers Down Under. Besides, China is the largest foreign stakeholder in the Australian water market. Chinese investors own 732 gigalitres or 1.89% of the water.

India-Australia double whammy for China

International relations observers are seeing the new rules in the backdrop of the recent video conference between Prime Minister of India Narendra Modi and his Australian counterpart. The two leaders signed off a new agreement in the virtual summit on 4 June to boost economic trade between the two countries, build closer partnerships around science and technology and strengthen defence cooperation.

The Comprehensive Strategic Partnership happened simultaneously with Chinese forces making incursions into Indian territories once again, turning aggressive in the Indo-Pacific region too, as well as imposing huge tariffs on Australian imports.

With Australia and India are both thwarting China’s encroaching presence, Morrison says “trusted partners” must work together. “It is time for our relationship to go broader and deeper,’ he told Modi on 4 May, adding, “In a time like this we want to deal very much with friends and trusted partners. And this is a partnership which has stood the test, time and again and is during the course of this current crisis. We share a vision for open, free, rules-based, multilateral systems in our region. Whether that is in the health area or it is in the trade or other places. We engage in those as confident but sovereign nations.”

Two countries at the receiving end of Beijing’s imperialsm

When Australia called for an independent international inquiry into the origins of coronavirus and the actions of the Chinese Communist Party, Beijing tried to cripple the Australian economy with an 80.5% levy on barley exports, after weeks of threatening to boycott Australian industries.

Given that Australia exports up to two-thirds of all its barley to China, the tariff decision was a massive blow to the annual $ 600 million industry. 

Alongside, China’s relations with India deteriorated due to incursions. While India and China share the world’s longest land border — over which they fought a war in 1962 — China is one of the biggest trading partners of India, a scenario, sources say, the current political leadership in New Delhi wishes to change.

After posturing menacingly overlooking India’s Sikkim border at Doklam in 2017, China started erecting tents near the Ladakh border last month, leading to massive troop deployment and heavy weaponry installations on either side of the border.

Can India, Australia help each other sufficiently?

India is Australia’s eighth-largest trading partner and fifth-largest export market, says the Department of Foreign Affairs and Trade in Barton.

While trade between India and Australia was worth $ 30.3 billion in the 2019 financial year, with coal and education driving Australia’s exports, Prime Minister Modi expects the figures to swell under the Comprehensive Strategic Partnership.

Modi described the India-Australia agreement as a “new model of India-Australia partnership and a new model of conducting business”. “We had an outstanding discussion, covering the entire expanse of our relationship. With the Comprehensive Strategic Partnership between India and Australia, we aspire to achieve yet new heights in our collaboration,” Modi said on 4 May.

The issue is whether India can benefit Australian barley farmers substantially, looking that they are to expand into new markets after their major buyer China slapped an 80% tariff on their product. India, trade observers believe cannot be a large market for barley. According to the Agricultural and Processed Food Products Export Development Authority website, India imported a record 1.25 lakh tonnes of barley between April 2016 and March 2017, from Australia and France, due to low domestic production.

And yet, that is not enough to compensate for the loss in China. China had imported a total of 8.9 metric tonnes of barley in 2017, indicating it relies heavily on barley sourced from overseas rather than its small domestic market.

India-Australia cooperation in other areas

Other areas of focus for the two countries are the internet and maritime security. “Australia and India are working together to promote an open, safe and secure internet, and to ensure critical tech does not pose risks to security and prosperity,” Australian Foreign Minister Marise Payne said. “(We) have also marked a major step forward in our security and defence relationship. Today we signed a wide-ranging maritime declaration committing our nations to supporting the rules-based order at sea in the Indo-Pacific region,” he added.

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